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Gear Energy (TSE:GXE) Has Affirmed Its Dividend Of CA$0.005

Gear Energy Ltd.'s (TSE:GXE) investors are due to receive a payment of CA$0.005 per share on 28th of June. Based on this payment, the dividend yield on the company's stock will be 8.7%, which is an attractive boost to shareholder returns.

Check out our latest analysis for Gear Energy

Gear Energy Is Paying Out More Than It Is Earning

We like to see robust dividend yields, but that doesn't matter if the payment isn't sustainable. Before making this announcement, Gear Energy's dividend was higher than its profits, but the free cash flows quite comfortably covered it. Generally, we think cash is more important than accounting measures of profit, so with the cash flows easily covering the dividend, we don't think there is much reason to worry.

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EPS is set to grow by 23.0% over the next year if recent trends continue. However, if the dividend continues along recent trends, it could start putting pressure on the balance sheet with the payout ratio reaching 152% over the next year.

historic-dividend
historic-dividend

Gear Energy Is Still Building Its Track Record

The dividend has been pretty stable looking back, but the company hasn't been paying one for very long. This makes it tough to judge how it would fare through a full economic cycle. Since 2022, the dividend has gone from CA$0.04 total annually to CA$0.06. This works out to be a compound annual growth rate (CAGR) of approximately 22% a year over that time. We're not overly excited about the relatively short history of dividend payments, however the dividend is growing at a nice rate and we might take a closer look.

Dividend Growth Could Be Constrained

Investors could be attracted to the stock based on the quality of its payment history. It's encouraging to see that Gear Energy has been growing its earnings per share at 23% a year over the past five years. Although earnings per share is up nicely Gear Energy is paying out 229% of its earnings as dividends, which we feel is borderline unsustainable without extenuating circumstances.

In Summary

In summary, while it's good to see that the dividend hasn't been cut, we are a bit cautious about Gear Energy's payments, as there could be some issues with sustaining them into the future. The company is generating plenty of cash, which could maintain the dividend for a while, but the track record hasn't been great. This company is not in the top tier of income providing stocks.

Companies possessing a stable dividend policy will likely enjoy greater investor interest than those suffering from a more inconsistent approach. Meanwhile, despite the importance of dividend payments, they are not the only factors our readers should know when assessing a company. For instance, we've picked out 2 warning signs for Gear Energy that investors should take into consideration. If you are a dividend investor, you might also want to look at our curated list of high yield dividend stocks.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.